Ghana: The 2018 Budget – What is in it!

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Next month, the President Nana Akufo-Addo administration will present its budget proposals for 2018 to Parliament. TOMA IMIRHE and JEORGE WILSON KINGSON preview next year’s budget, examining what it will set out to do and how it intends to achieve those objectives.

All things being equal, the Minister of finance, Ken Ofori-Atta, will present the 2018 budget and economic policy statement of the government for the 2018 financial year to Parliament on Wednesday, November 8, 2017, BusinessWeek has gathered.

Majority Leader and Minister for Parliamentary Affairs, Osei-Kyei Mensah-Bonsu, last week told Members of Parliament that plans are far afoot for this major constitutional exercise and that the Business Committee of the House has been notified to programme for the Finance Minister to appear in the House.

He however hinted of a possibility of a shift in date by a week depending on how fast the House is able to complete work on the legislations for the establishment of three of the development funds that the government has proposed.

Three Bills are currently before the Parliament’s Committee on Employment, Social Welfare and State Enterprises for consideration into law. They include the Northern Development Authority Bill, 2017; Middle Belt Development Authority Bill, 2017; and the Coastal Belt Development Authority Bill, 2017.

As part of its intentions to give focus to the development of the various regions and to bridge the development gap between the northern and southern sectors of the country, the New Patriotic Party (NPP) promised during the 2016 electioneering campaign to ensure the establishment of the above stated funds with an appreciable seed capital.

The majority leader said the establishment of these Authorities is a major initiative that would draw on the national purse and this must be captured in the budget for next year.

The Ministry of Finance has been meeting stakeholders for their inputs ahead of the preparations of the 2018 budget statement, under the theme “Strengthening Partnership for Economic Growth and Development”. This is in accordance with section 21 (1) (a) of the Public Financial Management Act, 2016 (Act 921).

Vice President Dr. Mahamudu Bawumia, last week lamented the declining contribution of the agricultural sector to Gross Domestic Product (GDP), hinting that the impending budget would focus a bit on improving that sector.

Addressing the Agriculture and Agribusiness Investment Forum, Dr. Bawumia was emphatic that the 2018 budget will ensure the progress of the sector.

“The 2018 budget will help address some of the key challenges in the agric sector, it is important this is done so that the economy can be transformed through agriculture,” he stated.

“Our plans are aimed at implementing programs that will quickly address the primary challenges of the agric farmer, such as the provision of quality seeds and fertilizers, when this is addressed it will translate into high yields and high incomes for  the farmers,” he further stated..

What the 2018 budget will contain

Since assuming office at the beginning of this year, the incumbent government has strived to achieve a balance between its avowed commitment to supply side, expansionary economic policy aimed at accelerating growth and thus creating direly needed jobs, and the unavoidable exigency for fiscal consolidation, which requires stringent demand management.

Over the past nine months, economic realities have persuaded the government to scale down its ambitious public spending plans in the face of determination to achieve its 6.3% of Gross Domestic Product fiscal deficit target, despite revenue shortfalls and indeed it appears the target will be met, albeit at the cost of constrained provision of public goods and services.

In 2018, the effort to achieve a balance between using public spending to stimulate growth and fiscal consolidation to reduce the fiscal deficit and curb growth in the inordinately high public debt will be continued. However, for 2018, the latter will be the clear priority, but government hopes that the restoration of macro-economic stability, which is progressing well, will in itself serve as a foundation on which accelerated economic growth can be sustained even if public spending remains constrained.

The key target for the 2018 budget will be a 3.8% of GDP fiscal deficit. To achieve this sharp reduction from the 6.3% being aimed for this year, the revenue target will be 18.6% of GDP which is actually lower than the 19.8% target for 2017, but which will almost definitely not be met.

Instructively though, expenditures are to be kept down to just 22.4% of GDP, a major reduction from this year’s budgetary target of 26.6%. Here the biggest reduction being envisaged will be in interest payments on the public debt, which is planned to fall from 6.9% of GDP this year to 5.9% next year, as a result of falling domestic interest rates.

However, government intends to keep a tight ship with regards to its discretionary spending too. Capital expenditure is planned to fall, in relative terms, from 3.6% of GDP to 3.3%, while its expenditure on goods and services is to fall from 1.7% of GDP to 1.2%.

All this means that 2018 will be tighter than 2017 with regards to liquidity, unless the private sector can take up the slack as a result of the business stimulus policies being introduced by government this year.

Actually, this has been government’s strategy right from the start – increased public sector support to the private sector and a reduction in taxes are expected to result in increased business activity after the inevitable policy transmission lag between implementation of those policies and when the resultant increased private sector investment yields dividends.

Importantly for government, this also fits in with its own political exigencies. Tight liquidity now, and delays in the rollout of some of the policies, projects and programmes it promised during its 2016 electoral campaign will generate disappointment among voters but the medium term game plan projects that from 2019 (by which the IMF programme with its insistence on demand management) would have ended anyway) the fiscal space created by next year’s fiscal conservatism would enable significantly increased public spending within an environment of restored macroeconomic stability and accelerating expansion of private sector business activity. Government hopes that close to two years of this immediately prior to the next general elections, due in December 2020, – inclusive of rollout of flagship programmes and projects – will be enough to calm voters anger over delayed fulfillment of election promises made in 2016.

Indeed, intensified fiscal consolidation in 2018 is projected to generate a primary fiscal surplus of 2.2% of GDP after which renewed public spending thereafter would see it decline again to 1.5%.

Government has repeatedly committed to rolling out its flagship policies and programmes immediately, but the 2018 budget – or at least the mid-year review of the budget – will reveal that economic realities are forcing phased, rather than immediate implementation of initiatives such as free Senior High School and the US$1 million equivalent allocation for each and every constituency nationwide. The latter date for revealing this is the more likely of then two; just like for 2017, government will probably announce overly ambitious revenue targets to allow for full policy implementation in the budget, and then announce the cuts mid-year, in line with the actual revenue shortfalls.

However, revenues will actually be significantly higher next year than they are proving to be this year. Better tax administration through initiatives such as paperless ports and policies such as the removal of tax exemptions will reflect clearly next year and government plans to capture its expectations in this regard in the 2018 budget itself.

Several measures are being included in the 2018 budget to enhance the quality of public financial performance.

Government will continue streamlining its earmarking of revenues to reduce budget rigidities. In line with this it also plans to start publishing the accounts of Statutory Funds to bring more oversight and transparency.

The budget will also announce further streamlining of tax incentives, focusing reforms on those that are largely redundant, inequitable and prone to revenue leakages, such as tax holidays.

Government expects its measures to enhance tax compliance and reductions in tax exemptions will combined deliver about 0.8% of GDP in additional revenues.

From 2018, government will expand the coverage of the Ghana Integrated Financial Management and Information System (GIFMIS), review the roles of subvented agencies; and seek tom improve control and oversight of payrolls across all its agencies.

Importantly, government wants to clear all its payment arrears during 2018. These include arrears accumulated in 2016 of GHc1, 048 million which brought total arrears up to GHc3.2 billion. It also wants to deal with the issue of unpaid claims which have been reconciled and accepted, following validation by the Auditor General’s office. Total unpaid claims for 2016 amounted to GHc5 billion, but only GHc1.6 billion out of this went through GIFMIS and so the validity of GHc3.4 billion is still uncertain. This illustrates the sheer magnitude of the fiscal indiscipline shown by the Mahama administration in its last year in office.

The 2018 budget will get a significant boost from Ghana’s multilateral and bilateral donors who have made firm commitments up to the third quarter of next year. Some GHc755 million in donor support is being expected in 2018, translating into 1.5% of GDP although is less than the GHc955 million, or 2.1% of GDP budgeted for this year.

Another significant plus for the financing of the 2018 budget is that the IMF has approved Ghana’s request to use the Funds’s disbursements under the ECF programme to support the budget itself. Hitherto, IMF disbursements have been made to the Bank of Ghana as balance of payments support. Also, the World Bank has agreed to provide Ghana with credit on concessional terms in a three year programme.

These are pluses for government’s budget financing but ultimately, it is the ability of the Ghana Revenue Authority to meet its targets will be the real key to whether or not the 2018 budget will be successful with regards to overall revenues and therefore overall expenditures.

Expect a tight 2018 from the perspective of public spending though. The President Akufo-Addo administration has been given a four year mandate from the electorate and it intends to use the time this gives it.  

Toma Imirhe













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